Best Mutual Funds – Compare and Invest in Top Performing Mutual Funds

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Thanks to stellar returns, mutual funds have become one of the most popular modes of investment in India for both short and long term. However, the most pertinent question among investors regarding mutual fund investment is “Which are the best mutual funds to invest? ” India’s top performing mutual funds are poised to deliver strong returns to investors . Valuations in many categories have reached attractive levels after the market correction , opening up opportunities for fund managers.

In this article, you can read about the top performing mutual funds to invest and how you can select the best funds.

 

Best Mutual Funds to Invest in India 

{Source: Value Research: Data as on May 12, 2020}

How to Pick the Best Mutual fund ?

Investments in Mutual Funds can be risky but have the potential to give higher returns than many other investment options. However, choosing the right fund is not an easy task as there are some very important factors such as Diversification, Risk, Returns, Liquidity, etc. which are supposed to be analysed thoroughly.

Check out these parameters which can help you judge the potential of a mutual fund-

1. Identify the Financial Goal/Objective

Are you willing to invest your money for a long term period or a short term investment would be fine? Do you want to save for educational requirements or are you planning your retirement? There are more than 1500 Mutual Funds in the market. Before you shape your investments and dig into the fund pool, it is very important to identify your financial goal.

Different Mutual Funds can serve different objectives. For instance, an investor with retirement goals would prefer investing in a long-term scheme (more than 10 years). On the other hand, an investor who is saving to buy property or a car would like to invest in a medium term fund (3 to 5 years).

2. Risk Tolerance

‘Mutual Funds are subject to market risks. Please read all the scheme related documents carefully.’ Now, Risk is a factor which drives your investment decisions. Majority of investors are not willing to indulge in market risks whereas there are investors who have high risk tolerance and focus on generating higher returns.

New investors with no to minimal knowledge of market functioning can invest in funds which are not too risky such as Large Cap Equity Funds or Debt Funds. Large Cap funds invest in companies with Large market capitalization and hence, they are less affected by market volatility. Debt Funds invest in Government securities & corporate bonds which are comparatively less risky.

On the other hand, investors who are more concerned with returns and comfortable in taking investment risks can invest in funds which give high returns such as Small Cap Equity Funds & Mid Cap Equity Funds. Nevertheless, it must be realised that no fund is entirely risk free. Even Debt Funds are prone to Credit Risk and Interest Risk. One can indulge in Diversification which can mitigate the overall risk involvement.

3. Fund Performance

The past performance of the fund can be a good parameter of judging the potential of a fund. You must observe the consistency a fund has maintained over a period of time and how well has it accomplished the goals. Trailing returns over three year and five year period can help one distinguish between the performance of the benchmark and returns accrued by the fund itself. But, it is to be kept in mind that a fund’s past performance is not completely indicative of its future returns.

4. Assets under Management (AUM) & Costs

Assets Under Management (AUM) define the size of the fund, the total number of assets the fund holds, and subsequently invests in securities. This indicates the capability and potential of the fund following which the investors are largely investing in that fund. High AUM can also expose a fund to market risks.

Costs like Expense Ratio and Exit load must be taken into consideration as these charges are drawn directly from your returns. Expense Ratio is the cost charged for portfolio management and Exit Load is the cost which is charged at the time of redemption of fund units. For some funds, the Expense ratio can be very high. According to SEBI, a maximum of 1.5% expense ratio is good. Investors must avoid the funds which have stringent exit loads.

5. Managerial Expertise

When it is about betting in Mutual Funds, expert management is a necessity. Some funds are actively managed and some are passively managed. Before you finalise a scheme, you must determine how your fund will be managed.

Managers undergo critical research procedures of evaluating and analysing different sectors, economic trends, companies etc. while forming a good portfolio. The fund manager should be experienced enough to understand the market movements in order to place good bets and obtain sufficient returns. In case of bad management and overlooking downturns, the returns can suffer badly.

6. Avoid Middle Men charges- Go for Direct Fund options

There are two types of Fund Plans- Direct and Regular. In Direct Plans, the investors directly invest in desired funds without any interference of brokers. Whereas in Regular Plans, the investor is supposed to reach out to a broker who then processes the investment and further transactions.

Related Article: Direct Mutual Funds V/S Regular Mutual Funds

It is suggested, to avoid additional charges, that one should always choose direct plans as they allow the investors to directly invest in the scheme without the help of any distributors or intermediaries. Consequently, direct plans have lower expense ratio and are able to give relatively higher returns.

Which is better SIP or Lump sum?

Investments in Mutual Funds can be made through either SIP or Lump sum (also called one-time investment). By choosing Lump Sum investment, you can deposit all your money at once. On the other hand, SIP allows the investors to deposit a certain amount in the mutual fund scheme at periodic intervals. Choice between these two depends completely on the investor’s preference & style of investment. If you have an idle amount which you want to invest and have a high risk appetite, you can choose lump sum mode of investment. But, if you are willing to make small deposits over a period of time, SIP should be your pick.

SIP averages out your purchase price and keeps you away from the risk of investing, which is otherwise high in a lump sum investment, especially during a market high. If the market falls after you have deposited your SIP installment, you can still accumulate more mutual fund units in the next installment and so on. As a result, when the market recovers, you will get a higher return as compared to a lump sum investment.

Also Read: SIP V/S Lump Sum Investments

With SIPs, you can avoid the burden of lump sum investments and enjoy less risky investments. At periodic intervals when markets are up, the invested SIP amount buys fewer units of a fund and vice versa. Thereby, it enables you to lower the average cost of your investment and reduce the risk of your investment by spreading the purchase price over time. This is known as rupee cost averaging.

Moreover, if you choose Top-up SIP schemes you can increase increase the investment amount by a fixed amount regularly and get the benefit of compounding as they earn returns on the returns generated by the investment. This is known as power of compounding.

How to Use Mutual Fund Calculator?

In order to be a successful investor, it is paramount that investments are made in a systematic manner. To understand this, a prospective investor must use the Mutual Fund calculator provided by Paisabazaar.com. Mutual Fund calculator will help the investor figure out how much his/her investment will grow at the end of a specific tenure for a specific amount. Alternately, if the investor has a fixed goal in mind such as a corpus for retirement or buying a house, a Mutual Fund calculator can help him/her find out how much monthly investment is required in order to achieve that corpus timely.

Mutual Funds Calculator

How to invest in the Best Mutual Funds?

There are different methods through which one can invest in mutual funds:

• Offline mode– Visiting the nearest branch office of the fund house and investing in the desired scheme. You must carry all the required documents such as Identity Proof, Address Proof, Cancelled Cheque, Passport size photos, PAN Card and KYC Documents handy. You can also invest offline through a broker. However, this would then be a regular fund and not a direct fund. Think of it like a  charge brokerage which gets deducted from the total investment amount
• Online Portal– If you want a hassle free mode of investing with no commissions and brokerage, you can choose websites like Paisabazaar.com which allow the investors to compare more than 1,700 funds at one platform instead of visiting the website of each AMC and then searching for numerous funds. You can select the fund in which you want to invest, look at the details and compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment

How to Invest in Mutual Funds through Paisabazaar?

To invest in mutual funds, you should first complete your KYC, wherein you will be required to submit your identity proof and address proof such as Adhaar card and PAN card. Once your KYC is done, you need to select a mutual fund and submit a purchase request along with the payment. After doing your KYC, follow the given steps-

• Step 1: On Paisabazaar.com, select the ‘Mutual Fund’ option.
• Step 2: If you are a registered user, log in to the platform using your mobile number and password/OTP, or create a new account.
• Step 3: Choose ‘Invest’ > ‘Explore All Funds’ on the left sidebar
• Step 4: Select the Mutual Fund you wish to invest in. Now, all the details of the fund including NAV, risk level, etc. will appear
• Step 5: Enter the amount you wish to invest, select the investment type – SIP or Lumpsum, and click on the ‘Confirm & Add to cart’ option.
• Step 6: You can complete the payment using the net banking of major Indian banks.
  The Mutual Fund units will be allotted to you within 5 working days. If you’re not KYC Compliant, you will need to complete your KYC before investing in mutual fund schemes.

Other Mutual Funds

* Data as on May 12, 2020

Frequently Asked Questions

Q.1: Are returns of mutual funds guaranteed?

Ans. No. Mutual funds are market linked instruments, hence returns are not guaranteed. That said, over time, capital markets have created significantly more wealth than any other investment route currently available in the country.

Q.2: Which is the best mutual fund investment in India for 2020-21?

Ans: Mutual funds are good investments as long as the investor chooses a fund that suits their unique investment needs. On average, equity mutual funds offer the highest returns however, these investments require significantly higher risk tolerance as compared to debt or hybrid schemes that offer potentially lower returns but at the same time require considerably lower risk tolerance on the investor’s part. Hence the best mutual funds to invest in India would depend on multiple factors including investor’s risk tolerance, potential returns as well as investment time horizon.

You can check out the list of Best Equity Funds, Best Debt Funds and Best Hybrid Funds to get more information on the top schemes.

Q.3: Which is better, mutual funds or ULIPs?

Ans. Mutual funds are pure investment instruments whereas ULIPs provide dual benefits of insurance and investments. According to most experts, the combination of insurance with investment makes ULIPs an inherently poor choice as they provide low life insurance benefit along with potentially low investment benefits.

Thus, from an investment perspective, mutual funds with their potentially higher returns, superior transparency and excellent flexibility score above ULIPs.

Read More: ELSS vs ULIP: Which one should you invest in?

Q.4: What is Growth Option?

Ans: Growth Option in Mutual Funds refers to the option under which no dividends are received by the investors. There are funds which pay profits to the investors in the form of dividends. Once you have chosen a Growth option, you will not receive this amount. Instead, the fund company reinvests the dividend amount.

Q.5: What is a dividend payout option?

Ans: Some Mutual Funds offer dividends to the investors when the scheme makes a profit. When you choose a dividend payout option, the profits earned by the fund are transferred to the bank account of the investors in the form of dividend.

Q.6: What is a load or no-load fund?

Ans: Mutual Fund schemes charge a certain amount from the investors as and when they enter or redeem from a scheme. This charge/fee is called Load. A load fund is a fund which comes with sales charge or commission (entry load, exit load, broker fee, management fee, etc.). A no-load Mutual Funds comes with no such sales or commission charges.

Q.7: What is an expense ratio?

Ans: The fund operating expenses paid to the Fund Managers is called Expense Ratio. It includes several charges which are drawn from the returns. It is calculated by dividing a mutual fund scheme’s total expenses by the value of assets under its management (AUM).

Q.8: What is Equity Linked Savings Funds (Tax Saving Schemes)?

Ans: Equity Linked Saving Scheme (ELSS) is a category of equity mutual fund which provide tax benefits upto Rs. 1.5 lakh under section 80C of the Income Tax Act, 1961. ELSS is the only investment option in the tax saving category which can potentially provide highest returns and comes with lowest lock-in of 3 years.

Read More: Tax Saving Mutual Funds: Best ELSS Funds for 2020

Q.9: What are Exchange Traded Funds (ETFs)?

Ans: Mutual Funds which are listed and traded on stock exchanges like shares are known as Exchange Traded Funds (ETFs). An ETF passively tracks an index like the Sensex or Nifty by holding securities in the same weights as the Nifty/Sensex. ETFs can be traded anytime in the market but you need a demat account to invest in an ETF and execute buying or selling transactions.

Q.10: What is a Systematic Investment Plan (SIP)?

Ans: A Systematic Investment Plan (SIP) is an investment plan under which a certain amount is deposited in a mutual fund scheme at periodic intervals. A SIP helps an investor to benefit from the power of compounding while keeping the periodic investment requirement light on the pocket as a SIP can be started with an amount as low as Rs. 500.